Manley Toys Limited once claimed to be the seventh largest toy company in the world. Due to ongoing litigation and declining sales, it entered into a voluntary liquidation in Hong Kong. On March 22, 2016, the debtor’s appointed liquidators and foreign representatives filed a motion for recognition under chapter 15 of the Bankruptcy Code. The motion was opposed by ASI Inc., f/k/a Aviva Sports, Inc. (“Aviva”) and Toys “R” Us, Inc. (“TRU”).
U.S. Bankruptcy Rule 9019 provides that on a motion brought by a trustee (and thus a chapter 11 debtor-in-possession as well) the court may approve a settlement. The prevailing view is that due to the court’s approval requirement, pre-court approval settlement agreements are enforceable by the debtor but not against the debtor. The District Court for the Eastern District of New York recently disagreed. It held that the statutory approval requirement is not an opportunity for the debtor to repudiate the settlement.
Directors and officers (D&Os) of troubled companies should be highly sensitive to D&O insurance policies with Prior Act Exclusion. While policies with such exclusion may be cheaper, a recent decision by the U.S. Court of Appeal for the Eleventh Circuit raises the spectre that a court may hold a loss to have more than a coincidental causal connection with the officer’s conduct pre-policy period and make the (cheaper) coverage worthless.
A U.S. House of Representatives Bill would amend the Bankruptcy Code to establish new provisions to address the special issues raised by troubled nonbank financial institutions.
In a 2-1 opinion, the Second Circuit overruled the district court in Marblegate Asset Management LLC v. Education Management Corp., finding no violation of the Trust Indenture Act (“TIA”) in connection with an out-of-court debt restructuring.
Background
Addressing a novel issue in In re: International Oil Trading Company, LLC, 548 B.R. 825 (Bankr. S.D. Fla. 2016), the United States Bankruptcy Court for the Southern District of Florida recently denied in part an involuntary debtor’s motion to compel production of communications between the judgment creditor who had filed the involuntary bankruptcy petition and the petitioner’s litigation funder. The Court found that the attorney-client privilege and work product protection were applicable to certain disclosures made to the litigation funder, a non-lawyer third-party.
The U.S. Court of Appeals for the Tenth Circuit―in Rajala v. Gardner, 709 F.3d 1031 (10th Cir. 2013)―has joined the Second Circuit and departed from the Fifth Circuit by holding that an allegedly fraudulently transferred asset is not property of the estate until recovered pursuant to section 550 of the Bankruptcy Code and therefore is not covered by the automatic stay. According to the court, its decision “gives Congress’s chosen language its ordinary meaning, and abides by a rule against surplusage.”
In keeping with the courts’ narrow construction of what constitutes “substantial contribution” in a chapter 11 case, an Ohio bankruptcy court in In re AmFin Financial Corp., 2012 WL 652018 (Bankr. N.D. Ohio Feb. 28, 2012), denied administrative- expense priority to the fees and expenses of the holders of approximately $100 million in senior notes (the “Senior Noteholders”) issued by debtor AmFin Financial Corporation (“AFC”).